Timeline for Leaving Your Business
If forced by circumstances beyond your control, you may be able to exit your business within a year. But leaving in style, with adequate cash and achieving all of your goals will take far more time than most business owners expect.
You can leave your business whenever you chose if you are willing to settle for a less-than-ideal payday or you can leave in style. The question is: Do you want to control your exit and maximize your payday or will it be something that just happens to you?
Most business owners prefer to control their exit, but don’t realize in a timely fashion when they should start planning and implementing their exit plan. Below are some tasks common to all exits with the time-frame that is needed to complete the tasks
Design and Create Your Exit Plan
Time frame: 90 days to one year
Although it is possible to complete an exit plan within 90 days, most exit plans require close to a year to create. The reason is that most business owners need time to think about questions, ponder their answers, and weight their alternatives as they move through a comprehensive exit planning process for the first time
Close the Gap
Time frame: Generally ranges from three to seven years depending on the particular business, and the owner’s goals.
Frequently, there is a gap between the owner’s desired sales price and the current market price that a buyer is willing to pay.
Most business owners are unaware of the true value of their business because there is no public information available to help them value their business. This results in most business owners valuing their business above the current market value because they unknowingly include an emotional value to offset the blood, sweat and sleepless nights.
The surest way to close the gap between desired value and actual value is to create sustainable growth through a written plan. The plan should have monthly, quarterly and yearly deadlines and accountability.
Tax Planning and Implementation
Time frame: three to ten years
Part of reaping the full value for your business involves minimizing the tax consequences. Planning helps manage the tax consequence of the ownership transfer. In addition, this may also help manage the taxes on-going, annual basis.
The Transfer of Ownership Transaction
Time frame: One to ten years
Some business owners may choose to sell their ownership by simply transferring all of their ownership in exchange for a promissory note. This is a form of financial suicide because the seller will have given up management control and financial control, hoping to be paid as promised. What happens if the owner has been absent for a couple of years and the new owner stops making the payments? What happens if the new owner runs the business into the ground before stopping the payments?
A better approach is a methodical, extend, incremental approach over time, especially if the sale or transfer is to a key employee or child. This gives the key employee / child time to grow into the role of the business owner while also giving the seller time to transition out of the business. This method tends to create a better outcome for all involved. As the owner, you are in the best position to determine the time frame and the amount of ownership transfer based on your in-depth analysis during the exit plan.
Your exit should not be an event, but a process that takes place over time. Growing your business and your other significant achievements in life were done in multiple steps over a period of time. Why would transferring your business be done in a single step at a particular moment? Your exit should be no different. Your exit planning timeline is your bridge to the future.
Allen Business Advisors
Allen Business Advisors helps business owners prepare and transfer (or sell) their business to family, key employee or outside third party. Only 18% of business owners have a written exit plan; of those that do, 92% successfully transfer their business. 82% of business owners do not have a written exit plan; of those that don’t, only 12% successfully transfer their business. Call John R. Allen, III at 781-443-4874 to improve your chances of success. www.allenbusinessadvisors.com.
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